Crisil in its latest report has said that the Centre's fertiliser subsidy bill is set to soar by 62 per cent over the budgeted amount to Rs 1.3 lakh crore this fiscal due to the massive rise in raw material prices despite lower demand. An unprecedented spike in natural gas prices and other raw materials is set to inflate the fertilisers subsidy bill by a whopping 62 per cent or Rs 50,000 crore to Rs 1,30,000 crore this fiscal over the budgeted Rs 79,530 crore.
It said this is despite sales volume declining 10 per cent from the record level last fiscal. To encourage farmers to use fertilisers for better crop yield, government keeps their sale price significantly lower than market rates, and reimburses the difference to manufacturers directly. But for long, budget provisioning for such subsidies have been inadequate, leading to regular build-up of arrears. However, last fiscal the government cleared arrears through an additional disbursement of Rs 62,638 crore helping companies nurse their balance sheets to better health.
Besides, crisil expects the price of natural gas, the feedstock that accounts for 75-80 per cent of the total cost of production for urea plants, to rise over 50 per cent this fiscal. This is on top of the prices of key raw materials like phosphoric acid and ammonia, for non-urea fertiliser companies, that are already up 40-60 per cent over the past fiscal.
